Private equity’s march into the energy space has been fairly well documented. With the big guns such as Kohlberg Kravis Roberts & Co., Texas Pacific Group, GTCR Golder Rauner, and DLJ Merchant Banking making noise in the industry, the space would probably qualify as one of the more popular sectors among the buyout crowd. The aptly named Lightyear Capital is just the latest firm to target the sector, having announced at the end of January the formation of The Lightyear Rockland Partners LLC acquisition platform, dedicated exclusively to energy deals.
To target the sector, Lightyear has teamed with Rockland Capital Energy Investments, an investment company managed by former El Paso executives Scott Harlan, David Yeager and Martin Pickard. Additionally, energy project advisor D. Milne Associates has agreed to invest in the venture. “We’ve been looking at the area for about a year now,” Lightyear Chief Executive and Chairman Donald Marron said. “Broadly speaking, we have parts of the country that have a growing and steady demand for power. This is a long-term growth opportunity, and the sector is highly fragmented and has very good cash flow.”
For private equity, the appeal of the sector comes primarily from its stable cash flow. Another plus, especially for private equity, is the fragmentation that is seen in the industry, making it ripe for the consolidation opportunity most firms try to pursue. Ongoing regulatory issues also burnish the sector’s appeal, and financial buyers, who pose no threat to the competition watch dogs such as FERC, should benefit from the closely monitored deal environment that can obviate the strategic buyer’s participation.
The most notable deals recently include KKR’s and JPMorgan Partners’ $3 billion acquisition of UniSource Energy Corp., TPG’s $2.35 billion purchase of Portland General Electric, American Securities Capital Partners’ Private Power buyout and GTCR Golder Rauner’s $115 million Hardee Power Station purchase.
“[Private equity] firms are crucial to the [M&A] trends that are developing in the energy industry, particularly in the electricity sector,” said Mitchell Hertz, a partner at law firm Kirkland and Ellis and head of its energy practice.
Through the Lightyear/Rockland partnership, Lightyear has already made its first purchase in the space, acquiring Ripon Cogeneration from Suez SA subsidiary Tractebel Power Inc. Terms of the deal were not disclosed, although Marron did note it was an all-equity transaction. “We thought this would represent a good platform for us,” Marron said. “They’ve got reliable assets, long-term power contracts, a strong management team and predictable cash flow.”
Ripon, based in California, owns and operates two electric generating facilities, including a 47-megawatt facility located in San Joaquin County that sells power to Pacific Gas & Electric and a 41-megawatt facility in Pomona that sells power to Southern California Edison.
Equity for the platform will come out of The Lightyear Fund L.P., a $750 million private equity fund, raised by Lightyear in 2001. Separately, Lightyear recently announced it has completed its acquisition of DeepGreen Bank’s home equity lending platform and certain operations from Cleveland-based Third Federal Savings and Loan Association. Rockland Capital Energy, meanwhile, made its first independent deal in January, buying Aquila Corp.’s 50% stake in Prime Energy LP.
Buyer: Lightyear Rockland Partners LLC
Target: Ripon Cogeneration
Seller: Tractebel Power
Advisor: TP: Navigant
Legal Counsel: LRP: Covington & Burling; TP: Andrews & Kurth